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Business Administration - Accounting & Financial Planning FIN401 Study Guide - Midterm Guide: Asset Turnover, Historical Cost, Profit Margin

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greenmuskrat329
3 Jan 2018
School
Seneca College
Department
Business Administration - Accounting & Financial Planning
Course
Business Administration - Accounting & Financial Planning FIN401
Professor
Larry Hurst

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Document Summary

Book value per share (bvps) expresses shareholders" equity on. An indicator of the safety of a firm"s periodic interest payments. It depends on your perspective in liquidity ratios: suppliers and banks (short-term creditors) are most interested, shareholders are most interested in profitability ratios, long-term creditors concentrate on debt utilization ratios, the effective utilization of assets is management"s responsibility. Reflects what investors are prepared to pay for each dollar of reported annual earnings available on a common share. Dupont analysis utilization ratios and debt utilization ratios: reveals the relationships between profitability ratios and asset, decomposes a firm"s profitability into several determining factors. Allo(cid:449)s fo(cid:396) a(cid:374) a(cid:374)al(cid:455)sis of (cid:272)(cid:396)iti(cid:272)al (cid:272)o(cid:373)po(cid:374)e(cid:374)ts that i(cid:374)flue(cid:374)(cid:272)e roe a(cid:374)d help a(cid:374)al(cid:455)sts p(cid:396)edi(cid:272)t futu(cid:396)e t(cid:396)e(cid:374)ds. Desig(cid:374)ed to sho(cid:449) ho(cid:449) p(cid:396)ofit (cid:373)a(cid:396)gi(cid:374), asset tu(cid:396)(cid:374)o(cid:448)e(cid:396) (cid:396)atio a(cid:374)d the use of de(cid:271)t i(cid:374)te(cid:396)a(cid:272)t to dete(cid:396)(cid:373)i(cid:374)e the (cid:396)ate of (cid:396)etu(cid:396)(cid:374) o(cid:374) e(cid:395)uit(cid:455). Mgt (cid:272)a(cid:374) use it to a(cid:374)al(cid:455)ze (cid:449)a(cid:455)s of i(cid:373)p(cid:396)o(cid:448)i(cid:374)g pe(cid:396)fo(cid:396)(cid:373)a(cid:374)(cid:272)e. The bu(cid:271)(cid:271)le co(cid:373)pa(cid:374)(cid:455) has a (cid:396)etu(cid:396)(cid:374) o(cid:374) e(cid:395)uit(cid:455) of (cid:1008). (cid:1009)%.

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Related Questions

Calculate and discuss the importance of the following ratios:

Liquidity Ratios—working capital, current ratio, quick/acid-test ratio, receivable turnover, average day's sales uncollected, inventory turnover, average day's inventory on hand, operating cycle

Profitability Ratios—profit margin, asset turnover, return on assets, debt-to-equity ratio, return on equity

Long-term Solvency Ratios—debt-to-equity ratio, debt to total assets, times interest earned, cash debt coverage

Cash Flow Ratios—cash flow yield, cash flows to sales, cash flows to assets, free cash flow

Market Strength Ratios—Earnings per share, price-earnings per share, payout ratio, book value per share

1. The formula for Accounts Receivable turnover is

Select one:

a. Net Sales / average accounts receivable

b. Cost of goods sold / average accounts receivable

c. Net Sales / average merchandise inventory

d. 360 days / average accounts receivable

2. The category of ratios that determine the economic status ofpublicly-traded companies is

Select one:

a. Profitability ratios

b. Market value ratios

c. Liquidity Ratios

d. Solvency ratios

3. The working capital ratio is

Select one:

a. Quick assets / current liabilities

b. Working capital /current liabilities

c. Current assets minus current liabilities

d. Current assets/current liabilities

4. Earnings per share is calculated by

Select one:

a. Dividing net income by the authorized ordinary shares.

b. Dividing net income less preferred dividends by number ofordinary shares outstanding.

c. None of the above.

d. Dividing net income by the total number of ordinary andpreferred shares issued.

5. Which of the following belong to the profitabilityratios?

Select one:

a. Rate of return on equity

b. Rate of return on assets

c. All of the above

d. Gross Profit Margin

6. The category of ratios that shows the ability of the firm topay its long-term obligations is

Select one:

a. Profitability ratios

b. Solvency ratios

c. Market value ratios

d. Liquidity Ratios

7. Operating profit margin equals

Select one:

a. Income from operations / sales

b. Net income / sales

c. Gross profit / sales

d. Profit from operations / cost of sales

8. The following are quick assets except

Select one:

a. Short-term investments

b. Merchandise Inventory

c. Accounts Receivable

d. Cash

9. The following are liquidity ratios except

Select one:

a. Earnings per share

b. Working capital ratio

c. Quick ratio

d. Receivable turnover

10. Quick assets equals

Select one:

a. All current assets

b. Cash and Accounts receivable only.

c. Total assets less non-current assets

d. Current assets minus inventory

Joshua & White Technologies: December 31 Balance Sheets
(Thousands of Dollars)
Assets 2010 2009
Cash and cash equivalents $21,000 $20,000
Short-term investments 3,759 3,240
Accounts Receivable 52,500 48,000
Inventories 84,000 56,000
Total current assets $161,259 $127,240
Net fixed assets 218,400 200,000
Total assets $379,659 $327,240
Liabilities and equity
Accounts payable $33,600 $32,000
Accruals 12,600 12,000
Notes payable 19,929 6,480
Total current liabilities $66,129 $50,480
Long-term debt 67,662 58,320
Total liabilities $133,791 $108,800
Common stock 183,793 178,440
Retained Earnings 62,075 40,000
Total common equity $245,868 $218,440
Total liabilities and equity $379,659 $327,240
Joshua & White Technologies December 31 Income Statements
(Thousands of Dollars)
2010 2009
Sales $420,000 $400,000
Expenses excluding depr. and amort. 327,600 320,000
EBITDA $92,400 $80,000
Depreciation and Amortization 19,660 18,000
EBIT $72,740 $62,000
Interest Expense 5,740 4,460
EBT $67,000 $57,540
Taxes (40%) 26,800 23,016
Net Income $40,200 $34,524
Common dividends $18,125 $17,262
Addition to retained earnings $22,075 $17,262
Other Data 2010 2009
Year-end Stock Price $90.00 $96.00
# of shares (Thousands) 4,052 4,000
Lease payment (Thousands of Dollars) $20,000 $20,000
Sinking fund payment (Thousands of Dollars) $0 $0
Ratio Analysis 2010 2009 Industry Avg
Liquidity Ratios
Current Ratio 2.38 2.52 2.58
Quick Ratio 1.17 1.41 1.53
Asset Management Ratios
Inventory Turnover 1.11 1.22 7.69
Days Sales Outstanding 45.63 43.80 47.45
Fixed Assets Turnover 1.92 2.00 2.04
Total Assets Turnover 3.81 5.64 1.23
Debt Management Ratios
Debt Ratio 32.1%
Times-interest-earned ratio 15.33
EBITDA coverage ratio 4.18
Profitability Ratios
Profit Margin 9.57% 8.63% 8.86%
Basic Earning Power 19.16% 18.95% 19.48%
Return on Assets 10.59% 10.55% 10.93%
Return on Equity 21.87% 19.35% 16.10%
Market Value Ratios
Earnings per share NA
Price-to-earnings ratio 10.65
Cash flow per share NA
Price-to-cash flow ratio 7.11
Book Value per share NA
Market-to-book ratio 1.72
a. Has Joshua & White's liquidity position improved or worsened? Explain.
The position of JW has worsend because there ration has fallen from 1.41 to 1.17
b. Has Joshua & White's ability to manage its assets improved or worsened? Explain.
c. How has Joshua & White's profitability changed during the last year?
d. Perform an extended Du Pont analysis for Joshua & White for 2008 and 2009.
ROE = PM x TA Turnover x Equity Multiplier
2010
2009
e. Perform a common size analysis. What has happened to the composition
(that is, percentage in each category) of assets and liabilities?
Common Size Balance Sheets
Assets 2010 2009
Cash and cash equivalents
Short-term investments
Accounts Receivable
Inventories
Total current assets
Net fixed assets
Total assets
Liabilities and equity 2010 2009
Accounts payable
Accruals
Notes payable
Total current liabilities
Long-term debt
Total liabilities
Common stock
Retained Earnings
Total common equity
Total liabilities and equity
Common Size Income Statements 2010 2009
Sales
Expenses excluding depr. and amort.
EBITDA
Depreciation and Amortization
EBIT
Interest Expense
EBT
Taxes (40%)
Net Income
f. Perform a percent change analysis. What does this tell you about the change in profitability
and asset utilization?
Percent Change Balance Sheets Base
Assets 2010 2009
Cash and cash equivalents
Short-term investments
Accounts Receivable
Inventories
Total current assets
Net fixed assets
Total assets
Base
Liabilities and equity 2010 2009
Accounts payable
Accruals
Notes payable
Total current liabilities
Long-term debt
Total liabilities
Common stock
Retained Earnings
Total common equity
Total liabilities and equity
Base
Percent Change Income Statements 2010 2009
Sales
Expenses excluding depr. and amort.
EBITDA
Depreciation and Amortization
EBIT
Interest Expense
EBT
Taxes (40%)
Net Income